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The 1990s was a time of tremendous
economic growth in the United States.As a
result, state governments enjoyed the best fiscal conditions they have encountered in
decades.State revenues grew above
expectations at the same time that spending pressures declined for many of the safety net
programs that are the responsibility of state governments.

Some have argued that states responded
to these good economic times by overspending.Critics
of state government actions sometimes cite the unadjusted total growth in state spending
of 90 percent between 1989 and 1999 as evidence that state spending exploded during this
period.A few suggest that the current state
fiscal crisis is the result of this overspending.The
evidence does not support these claims.

State spending growth during the 1990s was consistent with
 and slightly below  historical trends.State
own-source spending (that is, spending from taxes, fees and other state revenue sources)
as a share of personal income increased less in the 1990s than it did in any of the last
five decades since 1949.

Most of the increase in nominal expenditures was due to the
natural growth in state government spending that must occur in response to population
increases, inflationary increases in costs, and changes in the need for expenditures that
result from a growing economy.When adjusted
for inflation, changes in population, and the size of the economy, state spending grew
only modestly during this period.

Part of the change in state spending during the 1990s
reflected a shift in responsibilities to the state level.Total federal, state and local spending as a percent of GDP declined during
the 1990s, but state and local spending increased slightly as devolution moved
responsibilities from the federal to the state and local levels.

The two areas of state budgets that contributed most to
increased spending were primary and secondary education and health care.

This report focuses on state spending trends during the 1990s.Examining current data available from sources
such as the Census Bureau and the National Association of State Budget Officers the report
finds that states did not overspend during the
1990s.

Most of the increase in state spending during the 1990s was
ordinary growth that can be expected when the economy grows.In times when states are not either expanding
their role by embarking on major new initiatives or scaling back their responsibilities,
state spending can be expected to grow at about the same rate as the economy.If state spending grew at the same rate as the
economy, the ratio of total state spending to total personal income a common measure of the size of state economies in
total would remain constant.Using this measure, the growth in state spending
was not out of the ordinary for recent decades.State
own-source spending (that is, spending from taxes, fees and other state revenue sources)
as a share of personal income grew from 8.0 percent to 8.4 percent between 1989 and 1999
 an increase of only 0.4 percentage points over the decade.This is the lowest level of growth in any of the
last five decades since 1949.

The conclusion that the growth in state spending of the 1990s
was not out of the ordinary does not depend on the measure of growth that is used.For example, state own-source spending per person
adjusted for inflation increased by an average of 2.0 percent per year between 1989 and
1999.This is below the long-term growth
trend of 2.9 percent per year for the entire period from 1949 and 1999.It is also lower than the average annual growth of
2.3 percent in the more recent period between 1969 and 1999.

Part of the growth in state spending reflects the shift of
certain governmental responsibilities from the federal to the state and local levels. While state and local spending grew as a percentage
of the Gross Domestic Product between 1989 and 1999, federal spending as a percentage of
GDP declined.Overall, the size of
government at all levels relative to the economy shrank during the last decade, dropping
from 30.2 percent of GDP in 1989 to 28.0 percent of GDP in 1999.

In addition, certain other governmental responsibilities (in
areas such as education) shifted to some extent from the local to the state level as
states sought to equalize education spending among localities, contributing further to the
increase in state spending.

State spending increased not only as states assumed a more
prominent role in providing government services, but also in response to growing costs and
public demands for new investments in certain areas.For example, spending on education grew faster than the economy during the
1990s.Two reasons were that the school-age
population grew faster than the general population and that school costs grew faster than
general inflation.In addition, states
increased their investment in education in response to public pressure for smaller class
sizes, more training for teachers, a more equitable system of financing schools, and other
costly measures.

State spending on health care  especially Medicaid
 also grew faster than the economy over this period.The two main reasons were forces outside the control of state policymakers.During the early 1990s, health care costs
grew much more rapidly than general inflation.In
addition, Medicaid enrollment rose among disabled individuals and the elderly, two groups
with expensive health care needs.Some of the
increase in costs also resulted from initiatives to expand health care coverage among
low-income children and pregnant women and from increases in state spending on hospitals
that serve low-income populations.

State spending on corrections increased as the number of
prisoners grew dramatically.This growth was
the result of public demands for stiffer penalties for criminals as well as technological
advances that improved the ability of law enforcement officials to apprehend criminals.

Not all parts of state budgets grew relative to the economy.State spending on public assistance declined
during the 1990s.Spending on higher
education and transportation remained at about the same share of personal income.

In summary, states did not overspend
during the 1990s.State spending growth was
low by historical standards.States
generally increased spending prudently in response to various cost pressures while making
limited new investments.